Soaring costs put Turkish energy importer under pressure to raise prices

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  • BOTAS is still selling gasoline at a discount, despite recent hikes
  • Further price hikes would fuel inflation and hurt producers
  • The Treasury paid billions of dollars to cover the BOTAS deficit

ANKARA, April 15 (Reuters) – Soaring energy prices around the world are putting pressure on Turkey’s state-owned energy importer BOTAS to raise prices further as it sinks deeper into the red, even as manufacturers complain that recent price hikes are threatening their operations.

The pipeline operator and trading company needed a 100 billion lira ($6.8 billion) payment from the Treasury last year to cover its shortfall and losses have accelerated since the Russia’s invasion of Ukraine has pushed up energy prices, officials say.

This poses several challenges for the Turkish authorities, which import almost all of its energy needs. BOTAS has bought billions of dollars from the Central Bank to cover its purchases, eroding the bank’s already low foreign exchange reserves, while Treasury payments to BOTAS are widening the budget deficit.

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At the same time, any price increases imposed by BOTAS on Turkish industry could undermine the government’s desire to promote export-led economic growth, while maintaining upward pressure on inflation, which has exceeded 60%.

Four industrialists representing some of the most gas- and electricity-intensive sectors, such as steel, ceramics and cement, told Reuters that soaring costs would drive up the prices of their products.

So far, BOTAS has kept its gas prices to consumers and industry well below the $830 per thousand cubic meters it pays in April. It said its latest price increases on April 1 still left households with an effective subsidy of 70%.

“BOTAS has provided significant support to households, power plants and industrial enterprises. Compared to mainland Europe, before the price hike, industry and power plants paid one eighth of the price and households paid one twentieth of the prize,” a senior government official said. .

“Now BOTAS is still making serious losses, but it’s government policy and the subsidies continue.”

Since the end of 2020, BOTAS has raised the price of natural gas for industry by 568% in Lira, according to Reuters calculations. This reflects a 49% fall in the Turkish lira against the dollar during this period, in addition to rising global energy prices.

“Despite the increases, BOTAS lost billions of dollars in the first quarter. If current numbers hold for the rest of the year, the loss is expected to grow exponentially,” a source familiar with the matter said.

He said BOTAS’ balance sheet problems meant that even with continued Treasury support worth 14.7 billion lira in February, it now had difficulty borrowing from banks. Asked about the claims, a BOTAS official referred Reuters to the Department of Energy, which did not immediately comment.

“The government’s preference is not to make price hikes that will drive up inflation as much as possible, but there is a serious cost related to commodity prices,” the source said.

The cost of Turkey’s energy imports doubled in January and February from a year ago, to $16.6 billion, helping to push Ankara’s trade deficit up 135%.

In February alone, BOTAS and other state entities purchased a record $5.37 billion in foreign currency from the Central Bank.

Industrialists have asked the government for support, including an 18% VAT cut in Turkey, to help them cope with rising gas prices, the senior government official said.

They also warned that further rises in energy prices would feed through to the prices of goods, leading to even higher inflation and limiting the competitiveness of Turkish businesses.

“Energy costs are already creating a heavy burden for the exporter, and now they have reached a level that places costs above some of our competitors in the European Union,” said Erdem Cenesiz, President of exporters of cement, glass, ceramics and soil products. ‘ Association.

“These prospects put us at risk of losing our competitiveness vis-à-vis EU companies and our hard-earned export markets around the world.”

($1 = 14.6880 Lira)

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Reporting by Orhan Coskun and Ceyda Caglayan Writing by Ece Toksabay; Editing by Dominic Evans and Elaine Hardcastle

Our standards: The Thomson Reuters Trust Principles.

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